Delivering Top-Quartile Shareholder Return
n 2009, despite delivering record earnings, our total shareholder return was 2.4 percent, which ranked in the bottom quartile of our peer group. Last year’s disappointing performance does not track with our cumulative 11-year record of top-quartile returns. From 1998 to 2009, Entergy delivered total shareholder return of 277.7 percent, exceeding by a wide margin returns on the Philadelphia Utility Index and the S&P 500. We will work diligently in 2010 to deliver the top-quartile returns that shareholders have come to expect from Entergy.
In April 2010, following a decision by the New York State Public Service Commission rejecting the proposed spin-off of our non-utility nuclear assets, we announced the decision to pursue other strategies and unwind the internal organizations created for Enexus Energy Corporation and EquaGen LLC. At the same time, the Board increased Entergy’s dividend to an annualized $3.32 per share, the first increase in the quarterly common stock dividend since July 2007.
Going forward, we continue to see productive investment opportunities in our utility business. As an example, our 2010 to 2012 utility capital forecast increased by $0.7 billion over the previous three-year-period forecast. We also believe Entergy Nuclear offers value creation potential through continued safe, secure and reliable operations in attractive power markets as well as opportunistic capital investments. We aspire to fund our capital needs without issuing traditional common equity, while maintaining a competitive capital return program.
In 2009, we returned approximately $1 billion to our shareholders through dividend payments and share buybacks. In fourth quarter 2009, our Board authorized an incremental $750 million share repurchase program. Absent other attractive investment opportunities, capital deployment through dividends and share repurchases could total as much as $5 billion over the next five years under the current long-term business outlook. The amount of share repurchases may vary as a result of material changes in business results or capital spending or new investment opportunities. In addition, we will maintain strong liquidity and solid credit metrics that support ready access to capital on reasonable terms.
We believe cash is the critical component to long-term success in our industry, particularly during a period of rising investment as we now face. Our goal is to continue to effectively manage our cash-flow profile in order to continue to shape our destiny. As in the past, we will simultaneously pursue continuous improvements, as well as game-changing opportunities using our dynamic point-of-view-driven business model. Our willingness and ability to adapt our strategies in light of changing conditions and points of view and a relentless drive for top-quartile returns have produced a decade of standout results. With a sustainable strategy, we believe history can repeat itself in the decade ahead.
Entergy Utilities: Seizing Opportunities
Our utility companies strive to meet the expectations of multiple stakeholders by safely and reliably providing affordable, clean power to customers, working to achieve constructive regulatory outcomes and continually seeking attractive investment opportunities. Our long-term success depends on aligning interests and creating a winning hand for all our stakeholders.
Our performance on key customer service metrics, which improved dramatically from 1998 to 2009, also improved year over year from 2008 to 2009. In fact, 2009 was our second best year for our outage frequency reliability measure since 1998. A commitment to operational excellence leads to reliable service. In 2009, Waterford 3 exceeded 400 days of continuous operation before shutting down in October for its scheduled refueling outage. This notable accomplishment ranks in the top decile of the industry for forced loss rate. The River Bend Station achieved a record run before shutting down for its scheduled refueling outage last fall, and the Grand Gulf Nuclear Station completed a record run in early 2010.
The objective of our regulatory agenda is to receive and then earn authorized rates of returns sufficient to attract investment capital and maintain a solid investment-grade credit rating. We believe formula rate plans are superior to lengthy rate cases and are an effective means of setting rates that provide for earning acceptable returns, reducing regulatory lag and promoting predictability and stability of rates for our customers. In addition, we believe FRPs should be structured to provide Entergy’s utility operating companies a fair opportunity to actually earn their midpoint or authorized return on equity, with mechanisms for timely recovery of approved expenditures and timely resets to the ROE midpoint as earnings fall outside of the allowed band. Significant opportunity exists to increase our earnings if the utility operating companies earn at their midpoint or authorized ROEs.
At the same time, each of our utility operating companies recognizes the need to maintain affordable rates, and benefited from the chance card dealt in 2009 in the form of falling commodity prices, principally natural gas prices. Residential rates have declined from peak commodity price levels experienced in mid-2008. Further, over the past several years, our rates have increased at a slower rate than our peers in the Southeast.
Even as we strive to reliably deliver clean, affordable power to our customers, we relentlessly seek attractive growth opportunities. We expect base load demand to grow 1 to 2 percent per year over the long term. In 2010, we expect strong demand growth due to economic recovery and industrial expansion in our service territories. Beyond load growth, we believe we can identify through our portfolio transformation strategy attractive opportunities that benefit customers. This strategy enables us to evaluate build versus buy options to close our capacity shortfall of about 1.6 GW. Since 2005, we acquired 2,309 MW of efficient, gas-fired capacity at an average cost of $261 per kW, roughly 50 percent lower than projected new-build costs.
In October, Entergy Louisiana announced an agreement to purchase Acadia Unit 2, a 580-MW, highly efficient, generating unit in southern Louisiana. Plans for a major upgrade to the Grand Gulf Nuclear Station in Port Gibson, Miss., were also announced. In 2010, Entergy Louisiana and Entergy Gulf States Louisiana sought approval to preserve new nuclear development options for their customers. We will continue to seek attractive investment opportunities to expand our capacity and grow our utility business.
Going forward, Entergy’s utility operating companies remain committed to reliable service, customer satisfaction, operational excellence, safety and constructive relationships with all stakeholders. Achieving these objectives, combined with organic and portfolio management growth opportunities, can help us realize the utility’s net income average growth potential of 5 to 6 percent compounded annually over the 2010 to 2014 horizon.
Entergy Nuclear: Managing a Valuable Option
In April 2010, Entergy announced its decision to unwind the business infrastructure created for Enexus Energy Corporation and EquaGen LLC and redirect efforts to other strategies. Work began immediately to eliminate dis-synergies related to the spin-off. This followed the decision by the New York State Public Service Commission in March 2010 to reject the spin-off of our non-utility nuclear assets. While we have not received an order in the case, we believe there are serious questions arising out of the proceedings based on the dialogue at recent meetings and will preserve all our legal rights. On the business side, however, we believe it is time to move forward to create and capture the value that remains unrealized. We believe these unique, clean, non-utility generating assets, which are located in attractive power markets, offer multiple potential upsides for our stakeholders. We will work diligently to realize the full potential.
Our nuclear operations team maintains a clear focus on delivering safe, secure and reliable nuclear power. Our non-utility nuclear fleet achieved a capability factor for 2009 of 93 percent and the second highest generation output ever. This outstanding performance is evidence of our ongoing commitment to operational excellence in every facet of our nuclear operations.
We are also pleased to report that the Nebraska Public Power District agreed to extend its nuclear services agreement at the Cooper Nuclear Station for an additional 15 years. NPPD’s decision to extend the agreement is a testament to the significant improvements in regulatory and operational performance that have been achieved since Entergy assumed responsibility for operations at Cooper in 2003.
In 2009, Entergy Nuclear was also honored to receive two Top Industry Practice Awards from the Nuclear Energy Institute. Every year NEI recognizes the best new practices supporting safe and efficient nuclear plant operations. Vermont Yankee employees received an award for implementing a remote system that improved the plant’s ability to conduct certain inspections. Entergy Nuclear corporate employees received an award for their Innovations Group, a first-of-its-kind group of subject matter experts dedicated to driving innovation across all nuclear departments. Finally, last April, Entergy Nuclear announced it will team with energy firm ENERCON to offer nuclear development services ranging from plant relicensing to full-service, new plant deployment.
We continue to pursue license renewals for our non-utility nuclear plants. The Nuclear Regulatory Commission renewed licenses for two of our six nuclear units – James A. FitzPatrick Nuclear Power Plant and Palisades Power Plant – in 2008 and 2007, respectively. We continue to work issues with the Nuclear Regulatory Commission and state regulators related to license renewals for Vermont Yankee Nuclear Power Station, Pilgrim Nuclear Power Station and Indian Point Energy Center Units 2 and 3.
We believe Entergy Nuclear will benefit from potential long-term growth in electricity demand combined with a capacity-constrained electric infrastructure in the northeastern United States. Beyond a potential supply/demand imbalance, potential upsides include the positive effects of an economic rebound on market heat rates, capacity markets and natural gas prices. In addition, the increasing likelihood of more stringent federal and state environmental laws favors clean baseload generation assets.
